(TY) 128.11 (2.29%) Key Risk Parameter for Now-Prompt Dec11 T-Note Contract

By: RJO MRTSeptember 6, 2011 9:16am CDT 7425


Technicals, September 6, 2011; 8:40am

The 240-min chart below details the past 1-1/2-weeks' recovery from a 3-wave corrective setback in the now-prompt Dec11 contract from 130.22 to 128.115 that remains consistent with the secular bull trend. As a result of Fri's strength, the market has defined Fri's 129.085 low as the latest corrective low and tightest risk parameter this market is now minimally required to fail below to jeopardize the impulsive integrity of the rally and expose an interim correction lower. But given the magnitude of the secular advance, weakness below at least 24-Aug's 128.115 low (above 2.29% yield) remains required to threaten a larger-degree correction or reversal lower. In lieu of proven weakness below these levels, a full bullish policy and exposure remain advised.


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The RSI measure of momentum in the daily chart of the Dec11 contract above shows the developing potential for a bearish divergence in momentum. But as always, a failure below a recent corrective low- 24-Aug's 128.115 low in this case- is required to confirm the divergence to the point of non-bullish action like long-covers and cautious bearish punts. In lieu of such sub-128.11 weakness, and despite this divergence red flag, the trend remains, in fact, up and should not surprise by its continuance or acceleration.

The daily log close-only chart of actual 10-yr U.S. T-Note yields shows a Fri 02-Sep close of 1.98%. By besting 30Dec08's low daily close of 2.05%, according to the FRB of St. Louis Fri's close is the lowest 10-yr yield since at least April 1953!!! Such historically low interest rates show virtually no expansionary pressure one would expect from a rebounding economy and corroborate our still-bearish technical view of the equity markets. And as a result of the past 1-1/2-weeks' resumption of the decline in rates, the market has been very accommodative in defining 24-Aug's 2.29% corrective high as THE interest rate level this market is required to recoup to break the steep but simple downtrend pattern of lower lows and lower highs and expose a larger-degree correction or reversal higher in rates that would be a welcomed sight for all of us looking for a rebound in the economy. In lieu of such 2.29% levels in 10-yr rates, further interest rate erosion remain expected, and with it a flagging economy.


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The weekly chart below shows the dominance of the secular bull trend on an active-continuation basis. Per such as well as the issues discussed above, a bullish policy remains advised with weakness below 129.08 required to defer this count and a failure below 128.11 (above 2.29% yield) required to threaten it sufficiently to warrant moving to a neutral/sideline position. In lieu of such weakness, further gains are expected with former 129.23-area resistance considered new near-term support.


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